How We Got Screwed

This report may shed some light on the current financial crisis and how government regulations designed to prevent fraud were circumvented.

The financial sector invested more than $5 billion in political influence purchasing in Washington over the past decade, with as many as 3,000 lobbyists winning deregulation and other policy decisions that led directly to the current financial collapse, according to a 231-page report issued today by Essential Information and the Consumer Education Foundation.

The report, "Sold Out: How Wall Street and Washington Betrayed America," shows that, from 1998-2008, Wall Street investment firms, commercial banks, hedge funds, real estate companies and insurance conglomerates made $1.725 billion in political contributions and spent another $3.4 billion on lobbyists, a financial juggernaut aimed at undercutting federal regulation. Nearly 3,000 officially registered federal lobbyists worked for the industry in 2007 alone. The report documents a dozen distinct deregulatory moves that, together, led to the financial meltdown. These include prohibitions on regulating financial derivatives; the repeal of regulatory barriers between commercial banks and investment banks; a voluntary regulation scheme for big investment banks; and federal refusal to act to stop predatory subprime lending.

"For the love of money is a root of all kinds of evil." 1 Tim. 6:10

I think we have a fairly good notion that America has been betrayed by greedy corporate and government officials. You can't have disasters like this without the cooperation and the collusion of government regulatory officials.

"The report details, step-by-step, how Washington systematically sold out to Wall Street," says Harvey Rosenfield, president of the Consumer Education Foundation, a California-based non-profit organization. "Depression-era programs that would have prevented the financial meltdown that began last year were dismantled, and the warnings of those who foresaw disaster were drowned in an ocean of political money. Americans were betrayed, and we are paying a high price -- trillions of dollars -- for that betrayal."

Why am I not surprised...

[...]These companies drew heavily from government in choosing their lobbyists. Surveying 20 leading financial firms, "Sold Out" finds 142 of the lobbyists they employed from 1998-2008 were previously high-ranking officials or employees in the Executive Branch or Congress.

Let's make a bet. No one, not a single, solitary, greedy soul goes to jail. There won't even be an investigation. That's the hopey change we have.

There are twelve primary manipulations that lead to the economic meltdown of American. Here are just the first three:

1. In 1999, Congress repealed the Glass-Steagall Act, which had prohibited the merger of commercial banking and investment banking.

2. Regulatory rules permitted off-balance sheet accounting -- tricks that enabled banks to hide their liabilities.

3. The Clinton administration blocked the Commodity Futures Trading Commission from regulating financial derivatives -- which became the basis for massive speculation.

4. Congress in 2000 prohibited regulation of financial derivatives when it passed the Commodity Futures Modernization Act.

5. The Securities and Exchange Commission in 2004 adopted a voluntary regulation scheme for investment banks that enabled them to incur much higher levels of debt.

6. Rules adopted by global regulators at the behest of the financial industry would enable commercial banks to determine their own capital reserve requirements, based on their internal "risk-assessment models."

7. Federal regulators refused to block widespread predatory lending practices earlier in this decade, failing to either issue appropriate regulations or even enforce existing ones.

8. Federal bank regulators claimed the power to supersede state consumer protection laws that could have diminished predatory lending and other abusive practices.

9. Federal rules prevent victims of abusive loans from suing firms that bought their loans from the banks that issued the original loan.

10. Fannie Mae and Freddie Mac expanded beyond their traditional scope of business and entered the subprime market, ultimately costing taxpayers hundreds of billions of dollars.

11. The abandonment of antitrust and related regulatory principles enabled the creation of too-big-to-fail megabanks, which engaged in much riskier practices than smaller banks.

12. Beset by conflicts of interest, private credit rating companies incorrectly assessed the quality of mortgage-backed securities; a 2006 law handcuffed the SEC from properly regulating the firms.

Here's another bet. How much attention will this report get from the media? When will the President and/or Congress and/or fiscal regulatory agencies reinstate the controls needed to prevent these abuses from occurring again?

And if you're not eating nails and spitting tacks, read this:

Financial Sector Political Money and 3000 Lobbyists Dictated Washington Policy

During the period 1998-2008:
Commercial banks spent more than $154 million on campaign contributions, while investing $363 million in officially registered lobbying: Accounting firms spent $68 million on campaign contributions and $115 million on lobbying;

Insurance companies donated more than $218 million and spent more than $1.1 billion on lobbying; Securities firms invested more than $504 million in campaign contributions, and an additional $576 million in lobbying. Included in this total: private equity firms contributed $56 million to federal candidates and spent $33 million on lobbying; and hedge funds spent $32 million on campaign contributions (about half in the 2008 election cycle).

The betrayal was bipartisan: about 55 percent of the political donations went to Republicans and 45 percent to Democrats, primarily reflecting the balance of power over the decade. Democrats took just more than half of the financial sector's 2008 election cycle contributions.